Modine Manufacturing Company, a diversified global leader in thermal management technology and solutions, reports financial results for the first quarter of fiscal year 2018.
First Quarter Highlights:
- Net sales of $515.5 million, up 48% from the prior year, including $157.5 million of sales from the recently acquired Commercial and Industrial Solutions (CIS) segment
- Non-CIS (base business) sales up 4% on a constant-currency basis
- Operating income of $27.6 million, up 75% from the prior year
- Adjusted operating income of $31.6 million, up 62% from the prior year
- Earnings per share of $0.34 and adjusted earnings per share of $0.39, up 89% and 70%, respectively, from the prior year.
"We are pleased to report a strong start to fiscal 2018 as Modine's sales and earnings improved significantly year-over-year, driven by the addition of our new CIS segment along with solid growth in our Americas, Asia and Building HVAC segments," says Modine President and Chief Executive Officer, Thomas A. Burke. "We are encouraged by signs of growth in the global off-highway markets, which contributed to our strong quarterly results. It is clear that the strategic actions taken over the past several years to strengthen, diversify and grow have fortified our business model and significantly contributed to Modine's strong financial performance during the quarter."
Net sales for the first quarter were $515.5 million, up 48% from the prior year. This included $157.5 million of sales from our CIS segment. On a constant-currency basis, sales from the base business increased $15.5 million, or 4%, from the prior year. The increase in base business sales was a result of sales growth in the Asia, Americas and Building HVAC segments, partially offset by lower sales in the Europe segment, largely resulting from the planned wind-down of certain commercial vehicle programs.
Gross profit increased $26.2 million to $88.5 million in the first quarter from the prior year, including $25.3 million contributed by the CIS segment. Gross margin decreased 70 basis points to 17.2%. The decline was primarily due to higher raw material costs and the negative impact of incremental depreciation and amortization expense resulting from purchase accounting. These negative drivers were partially offset by higher sales volume and savings from procurement initiatives.
Selling, general and administrative (SG&A) expenses increased $15.0 million in the first quarter from the prior year, primarily resulting from the addition of the new CIS segment, which reported $14.5 million of SG&A in the first quarter.
The company recorded $1.7 million in restructuring expenses during the first quarter, primarily related to equipment transfer and plant consolidation costs and employee severance expenses in the Americas segment.
First quarter operating income was $27.6 million compared with $15.8 million in the first quarter of the prior year. Excluding restructuring expenses, acquisition and integration costs, and certain other items, adjusted operating income was $31.6 million, up 62% from the prior year. This improvement was primarily due to the performance of the new CIS segment, which contributed operating income of $10.8 million.
Earnings per share were $0.34, compared with $0.18 in the first quarter of the prior year. Adjusted earnings per share were $0.39 compared with adjusted earnings per share of $0.23 in the first quarter of the prior year, with the increase driven largely by the increased operating earnings, partially offset by increased interest expense from the acquisition debt.
First Quarter Segment Review
- Americas segment sales were $148.3 million compared with $140.0 million one year ago, an increase of 6.0%. On a constant-currency basis, sales increased 5.0% year-over-year, primarily due to improved off-highway sales and stronger sales in Brazil. The segment reported operating income of $12.1 million, up $2.5 million from the prior year, primarily due to higher sales volume and lower restructuring expenses.
- Europe segment sales were $136.3 million compared with $146.0 million one year ago, a decrease of 6.6%. On a constant-currency basis, sales were down 4.3%, driven primarily by the planned wind-down of certain commercial vehicle programs. The segment reported operating income of $7.9 million as compared with $15.3 million in the prior year. This decrease was driven by higher material costs and lower sales volume.
- Asia segment sales were $35.4 million compared with $24.9 million one year ago, an increase of 42.2%. This increase was driven by higher sales to automotive customers in China and India and higher sales to off-highway customers in all our geographic markets as the excavator market continues to improve. Operating income of $3.3 million improved $1.8 million from the prior year, primarily due to higher sales volume.
- CIS segment sales were $157.5 million in the first quarter. The segment reported operating income of $10.8 million. In addition, the segment results include $3.2 million of intangible asset amortization expense and fixed asset step-up depreciation expense related to purchase accounting for the acquisition of Luvata HTS, which was completed on November 30, 2016.
- Building HVAC segment sales were $43.0 million compared with $39.9 million one year ago, an increase of 7.7%. On a constant-currency basis, sales were up 13.3% as compared with the prior year. This increase was due to higher sales of air conditioning, ventilation and heating products. Operating income of $3.1 million was up $2.2 million compared with the prior year, primarily a result of higher sales volume and lower SG&A expenses driven by cost-savings initiatives in the prior year.
Balance Sheet & Liquidity
Net debt was $489.1 million as of June 30, 2017, an increase of $12.4 million from the end of fiscal 2017. Total debt was $530.6 million as of June 30, 2017. Cash and cash equivalents at the end of the first quarter were $41.5 million. The increase in net debt was primarily due to the foreign exchange impact of the weakening of the U.S. dollar on euro-denominated debt and higher capital expenditures than the prior year.
Net cash provided by operating activities for the first quarter was $18.7 million compared with $1.6 million one year ago. The improvement from the prior year was driven largely by higher earnings from operations. Capital expenditures in the first quarter were $21.6 million, a $7.1 million increase from the prior year. This increase was primarily due to capacity expansion in the Asia segment.
"We are very pleased with the strong quarter, which exceeded our expectations," comments Burke. "Given that we are early in the year and the unpredictable nature of certain end-markets, we are holding our sales and earnings guidance ranges. However, I can confirm that we are currently trending towards the top end of the ranges."
Based on current exchange rates, market outlook and business forecast, Modine confirms the following guidance for fiscal 2018:
- Full fiscal year-over-year sales up 25-30%;
- Adjusted EBITDA of $175 million to $185 million;
- Adjusted operating income of $100 million to $110 million; and
- Adjusted earnings per share of $1.20 to $1.35.